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[traderabc] 18/3/2009 18:17

Not sure how up to date this index is.

Rogers International Commodities Index

Contract Exchange Currency Initial Weighting
Crude Oil NYMEX USD 21.00%
IPE Brent ICE USD 14.00%
Wheat CBOT USD 7.00%
Aluminum LME USD 4.00%
Copper LME USD 4.00%
Corn CBOT USD 4.75%
Heating Oil NYMEX USD 1.80%
IPE Gasoil ICE USD 1.20%
RBOB Gasoline NYMEX USD 3.00%
Natural Gas NYMEX USD 3.00%
Cotton NYCE USD 4.20%
Soybeans CBOT USD 3.35%
Gold COMEX USD 3.00%
Live Cattle CME USD 2.00%
Coffee CSCE USD 2.00%
Zinc LME USD 2.00%
Silver COMEX USD 2.00%
Lead LME USD 2.00%
Rice CBOT USD 0.50%
Soybean Oil CBOT USD 2.17%
Platinum COMEX USD 1.80%
Lean Hogs CME USD 1.00%
Sugar CSCE USD 2.00%
Azuki Beans TGE JPY 0.15%
Cocoa CSCE USD 1.00%
Nickel LME USD 1.00%
Tin LME USD 1.00%
Greasy Wool SFE AUS 0.10%
Rubber TOCOM JPY 1.00%
Lumber CME USD 1.00%
Barley WCE CAD 0.10%
Canola WCE CAD 0.67%
Orange Juice NYCE USD 0.66%
Oats CBOT USD 0.50%
Palladium COMEX USD 0.30%
Soybean Meal CBOT USD 0.75%

[traderabc] 17/3/2009 22:02

He argues his case much better then I ever could.

He dosen't believe the 'Amero' is a threat. Likes Silver, is serching for a currency and thankfully didn't endorse buying Monsanto, phew...

Excellent interview.

Jim Rogers Says U.S. Bailouts Add to Risk of Depression





"We are going to have civil unrest in the US, we are already having civil unrest in many places. This is going to be a mess, be prepared. I hope I am wrong, but be prepared"





When is it time to buy the Financials?

Normally when something like this happens the last thing to come out of it is the thing that led the problem going in. Five, six, seven or ten years from now you might start a new rise.

That is not to say you can`t have huge trading rallies and make a lot of money if you are nimble and quick.

Historically you don`t buy these things until they have cleaned themselves out and it takes a long, long time.
JIM ROGERS,

[traderabc] 17/3/2009 18:19

Thank you Dutch Alert, a very intresting article. Deserves to be posted in full.

The truth about deflation

by Eric Janszen

With all of this panicking into dollars we get asked a lot about deflation. "Why don't you just admit that a 1930s style depression and deflation spiral has begun and soon there will be soup lines and we'll be buying cars for $2,000 and gold will trade at $100." The reason is that we are 100% certain that dollar appreciation that we call "Ka" as part of Ka-Poom Theory will not turn into a deflation spiral. Cars are not going to cost $2,000, although there will be plenty of cheap used cars for sale, and gold will not go to $200. Here's why.

The essence of Ka-Poom Theory is that after the phony credit-based boom ends, first the dollar rises and inflation falls before dollar repatriation and government reflation policies kick in. We don't think the transition from disinflation to inflation is trade-able because we expect it to be chaotic. But we don't blame readers for trying, or wanting to.

This ain't deflation

We're not nit picking terminology here. We'll show you what a real deflation spiral looks like: nothing whatsoever like the deflation we are seeing today that we have long forecast and call disinflation to distinguish it from the run-away deflations that occurred under the gold standard in the pre Bretton Woods era.

Deflation was common back in the days when there was something for a currency to deflate against for more than a brief period of time before the government got involved: gold. Even then, governments often abandoned the gold to inflate the money supply to stop deflation, especially in times of war. If you are a government and need to inflate and there's no war to fight, then make something up–like a oil shortage in the 1970s.


Note the early 1920s deflation reached -30% in some months and on and off for years at a time. Note also the massive inflations produced as the US government temporarily suspended gold convertibility and printed money to fund wars. Many forget that these huge swings occurred: 80% inflation during WWI and 100% inflation after WWII.

Governments can always produce inflation. Always.


The period of deflation that occurred in the early 1930s is the one that most people think about when they hear the word "deflation." What they really mean is a deflation spiral, with the money supply imploding, credit contacting, large scale bankruptcies, rising unemployment, and falling economic output. Note that there was not a single month of inflation from 1930 to 1933. Prices went down and down and down. For years.

The 1930s deflation spiral ended abruptly in 1934. Why? FDR took the US off the gold standard and devalued the dollar against gold which remained the international currency for trade transactions. And–this is key–there has never been another similar period of deflation since then, in any country. Ever.

There is a reason for that: since the 1930s no country has been on a national gold standard.

Only one other government made the choice to stay on the gold standard at the time, Germany. Every other government got off the gold standard in the 1930s and inflated. Many, such as the US, finally resorted to currency depreciation when the pain got bad enough, exporting deflation. That was the impetus for Bretton Woods after the war: don't allow a repeat of competitive currency devaluations because nations in a global depression that fight each other with currencies are soon fighting each other with guns.



There were a very brief few months of deflation after WWII as the government attempted, Paul Volcker style, to wring inflation out of the post WWII economy. But note the deflation scale in this post-Bretton Woods period has now changed from the post-gold standard era where deflations exceeded 30% in some periods. Since then, no more 30% deflations. Rarely, for short periods when deflation has happened since Bretton Woods deflation has only once exceeded 10% in one month and has generally been limited to less than 5%.

Take-away: No gold standard, no deflation spirals. Ever again.



The first years of the 1960s were the golden era of monetary stability. In fact, life was so good the US government decided to ruin it by starting a war, building the military industrial complex, and launching numerous entitlement programs that we are to this day still kidding ourselves into thinking we can pay for. After running up a trade deficit that our trade partners feared we intended to pay with devalued dollars, the Europeans figured we were cheating and called our bluff by demanding payment of debts in gold. So we defaulted. US to the world: Thanks for playing!



This was the ugly era of birth of the FIRE Economy. I won't go into the details here but, clearly, deflation was not the problem. I will mention that this is when we came up with the dollar cartel to knock back OPEC and Nixon got to tell OPEC: "Thanks for playing!"



As the Volcker Fed raised interest rates, the US economy experienced a short spike of deflation around -5%. Since the technology stock bubble popped in 2000, the US has had several months of deflation like that in 2002, 2004, 2006, and 2007.

If you want to call today's period of low inflation a "deflationary period" then you must also call 2002, 2004, 2006, and 2007 deflationary–actually more deflationary than today if you look at the graphs. Meanwhile oil increased from $20 to $147 over that period, which is not exactly a typical symptom of deflation.

Japan also has never experienced a deflation spiral. They could end their modest deflation, never exceeding -2% in a quarter off and on for more than a decade in short order, but the trade-off for them is a crashed yen– so they don't. I think we'll crash the dollar fighting off deflation.

The critical take-away is that we are indeed experiencing short term deflation. We call it disinflation here in the context of Ka-Poom Theory to keep readers from confusing the process with the start of a deflation spiral–which cannot happen under a floating exchange rate, fiat money system. The only way it could is if governments around the world all got together and decided to crash the global economy. That strikes us as unlikely. More likely one or more will move to reflate using currency devaluation.

If the Fed so desired the US could have 100% inflation by the middle of 2009 as the US did in 1946. All that is needed is for Congress to borrow a few more trillion into existence to fund old and new liabilities and have the Fed print it because our government cannot borrow the money from overseas or raise taxes, or devalue the dollar, or both.

It's just that simple. Wish it wasn't so. Trust your government not to do it?

Neither do we.

If not deflation, then what? Stagflation?

Keep an eye on producer price index, commercial lending rates, and wage rates. These tell you how much your local grocery stores, restaurants, gasoline stations, and other businesses have to pay–their input costs–as the recession drags on. As recession deepens, businesses have to cut prices to their customers to meet lower demand. If input costs don't fall quickly, many of these companies will either go out of business or be acquired by stronger rivals that have more cash or access to credit. If this goes on for years, as we expect it to, instead of a short drive to the local Home Depot it's a long drive, instead of 10 restaurants to choose from in the area there are five, instead of four grocery stores to visit there are two, instead of four daily flights to your favorite destination from the nearest airport there is one. The plane is crowded. You are packed in like a sardine. The fare is expensive.

Inflation comes not only from surfeit of money relative to goods and services but also a shortage of goods and services relative to the supply of money.

In a couple of years when you get to the one remaining Home Depot in your area that has not closed you will find that it's crowed. As most of the goods that Home Depot sells are imported, and the dollar continued to decline after the current short term panic into dollars ends–and the impact of net negative capital flows exerts its natural downward pricing on the dollar–the wholesale prices Home Depot pays will not decline much if at all. The government will welcome the devalued dollar, as it has since 2002, because the inflationary impact helps counter the deflationary impact of debt deflation and helps the US export position. Wage rates will not rise because recession will have caused higher unemployment and reduced wage earner's pricing power. However, at that point there will be few stores (boom market in plywood to cover plate glass windows?) and two or three times as many consumers vying for the same goods, and the cost of imports is up because the dollar had depreciated further; prices may actually rise.

In response, consumers will buy fewer things and will substitute lower quality products for higher quality products, hamburger for steak. The golden age of the American consumer ends.

Let's say you are an American visiting an indebted country years ago that has lost its ability to extend its purchasing power via foreign borrowing because that is the situation that the US faces today. For example, Mexico in the early 1980s. What do you see? You spend your strong dollars so experience prices there as cheap. You see crowded stores and low prices–crowded because the equilibrium price between the cost of goods that stores pay and prices that customers can afford creates only enough demand to support a small number of stores for the local population. But the people who live there experience the same stores as crowded but with high prices. Why? Because while the new equilibrium price for goods is now the same as before or maybe higher, but the purchasing power of consumers has fallen due to lack of access to credit and falling incomes.

That is our future in the US once the spike in the value of the dollar ends and the dollar continues its decline through this recession. This picture may, however, be distorted by government intervention to support the housing and credit markets to slow debt deflation. Government spending may further weaken the US dollar. Then there is the possibility that immigration and trade policy will change to address wage deflation by lowering competition for jobs via restrictions on outsourcing and immigration.

[dutch alert] 17/3/2009 15:34

I value the opinion of Jim Rogers
You don't need to agree with everything
but his long term vision starting 1998
was insitefull. I see it as a warning.
I believe inflation wil caught us in
the same way as the current crises did.
I found a link on another board to a
good article on the deflation/inflation
issue

[traderabc] 17/3/2009 10:52

Currently the authorities' actions may limit it to a serious recession.

Or a serious depression/war. The 'serious recession' would of happened if they left the markets alone. It's just a matter of opinion presently, history will prove it one way or the other.

[traderabc] 17/3/2009 10:48

but then again probably most other things would do just as well if these markets recover

Some sectors will recover some won't. The commodity index is one area which should , and very quickly if inflationary pressures return, (which should happen) Banking retail and housing could take years. The commodity index (even with its falls) has still been one of the best performing index's of the last decade, it will most likely be the best performing sector in the next decade. These falls should be seen for what they are, a chance to get in on the long side at a good price.

[edmondj] 17/3/2009 10:40

If there is a genuine collapse in the banking system then depression is a dead cert. Currently the authorities' actions may limit it to a serious recession. I doubt the Jim Rogers Party would save the day.

[jonno1] 17/3/2009 10:38

He may well be right, and if you are like Buffet and Rogers and have a couple of hundred million dollars to invest then you can afford to be down a few million, however if you sold the dollar, bought China, Japan, Copper and Nickel,Corn, etc as he was proposing the last year with your savings you just lost most of it...
now if you were to invest in that stuff now, and the stocks that Schiff recommended which are down %80, this may well be the time, but then again probably most other things would do just as well if these markets recover

[traderabc] 17/3/2009 10:36

'to that and the big decoupling theory'

Again it is too early to see if this is the case, the really harsh part of the retrenchment is fairly recent, it's too early to see yet if major fundamental trends have failed. I still reckon China will rise once more, has their economic growth gone into minus figures yet? Obviously 10%+ growth rates weren't sustainable in the shorter term, even if they grow at 3% it will be 3% better than the west.

[traderabc] 17/3/2009 10:31

yet the consequencies could be even more disastrous... for the average family

Why? The average family dosen't have more than £50k in each of their bank accounts. If those banks were allowed to go bust, most deposters would have got back their money under the financial compensation scheme. Only those with over £50k (is that the threshold?)in a single account would have lost out.

[edmondj] 17/3/2009 10:08

Doubtless Jim will still - perhaps justifiably now! - be saying China is the bargain of the century!

How is his Chinese equity portfolio performing?

[jonno1] 17/3/2009 10:03

He is also inflation crazy at the moment, whereas the argument that deflation is the biggest nightmare facing the world has split commentators across the world.
As far as I see it you cannot have inflation without huge wage rises, and over the last couple of months companies have been slashing wages, e.g. HP, GM, etc, asset prices are collapsing, so he could be making a very bad call, the dollar has rocketed, and the Chinese market has collapsed, as has Japan, 20 Million Chinese have lost their jobs this year alone, with speculation another 80 million may be joining them , and add the problems facing the EU and Eastern Europe to that and the big decoupling theory, i.e.China will counter balance the US etc, has been a totally flawed thinking, which has been Rogers's ( and Schiff's) train of thought

[edmondj] 17/3/2009 09:53

This is another thing about Jim, he says not to rescue the banks, a nice controversial argument to get him prime media space yet the consequencies could be even more disastrous... for the average family, unlike Jim with his offshore millions.

[traderabc] 17/3/2009 09:50

16.3.09
In my view it is a rally in a Bear Market
In my view it is a rally in a bear market. Unfortunately that is the conventional wisdom these days, but I can`t see how it can be more than just a rally in a bear market.

The world is in serious trouble and there are more banrupcies and more failures to come. that does not mean we can`t have a rally for a few days, weeks or even months. But this problem is not over yet and the american government is making it worse by putting so much money on the wrong things.

JR

[traderabc] 17/3/2009 09:12

80% drops are not retrenchment. they are a collapse

Has Gold dropped 80%? The CRB (ie commodities average price)is down about 45% from the top of the runaway spikes, not that bad considering what has happened to financials, housing and retail.
In fact these retracments were mainly caused by what has happened in those other sectors.
Bear in mind the fundamentals for commodities are proportionally IMPROVED with lower prices, these are no tech stocks we are talking about here.

[traderabc] 17/3/2009 09:09

EJ, Granted he has made some poor (shorter term) calls, longer term he has been on the money. The 'contrarian instinct' is exactly what he had when he started his Commodity Fund at a time everybody was into Tech stocks.(98-99) Commodities still haven't even really appeared on most investors radar, the potential for this sector is still unknown. He will be running that fund for at least another 10 years, where will the CRB be then? I'll hazzard a guess,1000.

[juju43] 17/3/2009 08:59

80% drops are not retrenchment. they are a collapse

[traderabc] 17/3/2009 08:56

"The obvious is obviously wrong."

Good link washbrook.

[edmondj] 17/3/2009 08:54

Point being that Jim wasn't exactly guarded with his enthusiasm for commodities last year, amid what proved bull market froth!

You might expect a master judge of markets, to have some instinct when it makes sense to be contrarian.

[traderabc] 17/3/2009 08:48

'anyone who loaded up on commodities last year besides a mortgage might have a spot of local difficulty.'

True, some valid points, but why would anyone suddenly 'discover' commodities in 2008? The bull market started in about 2001, it was a very profitable trade for years, it should become again a very profitable trade for many more years. Though brutal and painful the retrenchment from such highs are normal and to be expected.(with hindesight! )

As for the effects of north sea oil and the financial services, it is still too early to say how wrong he is with that call. Just as it is too early to say how 'right' those 'economists' are.
We should come back to this topic in a few years time, when there will be little doubt about who has made the best calls.

[jonno1] 17/3/2009 08:38

traderabc
Rogers was sued for $362 Million for money his fund had with Refco, don't know what the final outcome was...

[washbrook] 17/3/2009 08:38

I remember the guru Joe Granville in the early 1970s.
He finally lost his following.

[edmondj] 17/3/2009 08:28

It was his factual analysis about the dependency on North Sea oil and financial services, which was castigated by Roger Bootle in one of his own articles also several other economists who wrote a main letter in the FT.

It highlighted what bothers me about JR, that he is a classic hedge fund guy who shoots from the hip. This can be fantastically profitable and entertaining for so long as markets move his way, but he needs to be adept at covering the mistakes. If his judgment isn't founded on the facts (remember one of George Soros' key admissions, 'trade first think later' to seize the main opportunity) then this is a concern.

That may be OK for people who have 'deep pockets' (as cited above) and can bounce back from these mistakes but anyone who loaded up on commodities last year besides a mortgage might have a spot of local difficulty.

I tune into Jim but with a pinch of salt ready.

[traderabc] 17/3/2009 08:22

'his recent analysis of the structure of the UK economy was in the fruitcake league'

EJ, Way too early to be making that claim, he only said it at Christmas. Like he said in a recent interview, 'ask me that question in 5 years time'.
How will sterling compare with silver ,gold, oil, agri commods, etc in 5 years time?
Not well I suspect. We will see.